President-Elect Donald Trump will return to the White House in 2025 — a year that already was expected to see significant activity on the federal tax front. A projected unified GOP Congress is poised to help him notch early legislative tax victories. The most obvious legislative win will likely be the extension and expansion of Trump’s signature 2017 tax legislation, the Tax Cuts and Jobs Act (TCJA).
While Trump didn’t issue detailed tax policies during the campaign, he briefly proposed several measures on the trail that could be included in a TCJA update or other law. Let’s take a closer look at what might be on the table for business and individual taxpayers in 2025 and beyond.
The TCJA’s ticking clock
The TCJA brought wide-ranging changes to the federal tax landscape, including:
- A 21% corporate income tax rate,
- Lower marginal tax rates for individuals,
- A higher standard deduction,
- The doubling of the Child Tax Credit for some parents,
- The creation of a qualified business income deduction for pass-through entities, and
- The doubling of the federal gift and estate tax exemption.
Although most of the corporate provisions are permanent, many TCJA provisions regarding individual taxes, as well as the doubled gift and estate tax exemption, are scheduled to expire at the end of 2025. Trump has endorsed extending those tax breaks.
Additional proposals affecting business taxes
During the campaign, Trump proposed several tax changes that businesses would welcome. For example, he would further reduce the corporate tax rate, to 15%, for companies that make their products in the United States.
He also has called for two changes that may have bipartisan support. Trump would allow companies to immediately expense their research and experimentation costs, rather than capitalize and amortize them, and return to 100% first-year bonus depreciation for qualifying capital investments. Under the TCJA, the allowable first-year bonus deduction is 60% for 2024, and for 2025 it’s slated to be 40%. Without congressional action, it will drop to zero in 2027.
In addition, Trump has spoken of doubling the ceiling on the Sec. 179 expensing deduction for small businesses’ qualifying investments in equipment. The TCJA permanently capped the deduction at $1 million, adjusted annually for inflation ($1.22 million for 2024). The deduction is subject to a phaseout when the cost of qualifying purchases exceeds $2.5 million ($3.05 million for 2024, adjusted for inflation).
Additional proposals affecting individual taxes
One TCJA provision that Trump has expressed second thoughts about is the $10,000 cap on the state and local tax deduction. The cap, which hits taxpayers hardest in states with high property taxes, is set to expire after 2025. Congress could just let it expire or even terminate it early, depending on how quickly lawmakers can move tax legislation.
A TCJA expansion or additional legislation could incorporate Trump’s promises to eliminate taxes on tips for restaurant and hospitality workers. (It’s unclear if he was referring only to federal income taxes or also payroll taxes.) Without limitations, such a provision could benefit individuals who restructure their compensation to reduce their tax bills by, for example, classifying bonuses as tips.
Trump has also proposed excluding overtime pay and Social Security payments from taxation. In addition, the president-elect has proposed a new deduction for interest on car loans for vehicles manufactured in the United States and a reduction in taxes for Americans living abroad.
Trump also said he’d consider making police officers, firefighters, active duty military members and veterans exempt from paying federal taxes. In a social media post, he wrote that if he won, hurricane victims could deduct the cost of a home generator, retroactive to September 1, 2024.
The imposition of tariffs
Trump has pledged to impose a baseline tariff of 10% on imported goods, with a 60% tariff on imports from China and possibly a higher tariff on imports from Mexico. Taxpayers likely will face higher prices as a result.
Rollback of the IRA
Trump has considered cutting unspent funds allocated for the Inflation Reduction Act’s (IRA) tax incentives for clean energy projects. He also may want to eliminate the business and individual tax credits going forward.
Stay tuned
2025 will be a critical year for tax legislation. In addition to the issues discussed above, so-called “tax extenders” for various temporary business and individual tax provisions will come up for debate. We’ll keep you apprised of the developments that could affect your tax liability. In the meantime, feel free to reach out to Cg with questions. © 2024